Stocks have picked up a more speculative vibe once again, ever since the deeply red sentiment low cemented into place for the broad indices in mid-June. At that time, we saw sentiment readings that were as or more bearish than at the lows of the global financial crisis in 2008, according to data from the options market, the American Association of Individual Investors (AAII), and other key market sentiment sources. (1)
In other words, people were expecting the absolute worst reality lying ahead as of two months ago. So, it’s no surprise to see a key bottom form around that period. When everyone is leaning one way, there’s mechanically no way for things to go but the other way. (2)
That has highlighted the appeal of long-term growth stories in the market, with more speculative, retail-oriented bets leading the way. And many of these stocks can now be considered “value” stories given the baby-out-with-the-bathwater nature of selling in growth names during the first half of the year. (3)
One of the most interesting groups that fits this description thus far during Q3 in the market is the cannabis space. (4) Stocks in the space like Tilray Brands Inc. (Nasdaq:TLRY) and Cronos Group Inc. (Nasdaq:CRON) made huge headway, rallying as much as 25% and 38% off their June or July lows before the pullback across the space of the past few sessions, demonstrating the appeal of these stocks to retail investors as soon as the market finds some footing. (5)
This is in line with long-term growth estimates for the cannabis space – with a recent report from Grand View Research citing a global legal marijuana market size valued at USD 13.2 billion in 2021, estimating its expected expansion from there at a compound annual growth rate (CAGR) of 25.5% from 2022 to 2030, making it easily one of the most robust growth markets in any segment during this period. (6)
Does that jive with stocks in the space getting hammered by 80, 85, 0r 90% over the past two years? For investors interested in taking some risk in oversold areas with strong industry growth prospects, the cannabis stock space appears to potentially be a prime candidate.
With that in mind, we take a look below at some of the most interesting names in the space.
Tilray Brands Inc. (Nasdaq:TLRY) is a global cannabis-lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia, and Latin America. The firm is focused on medical cannabis research and the cultivation, processing, and distribution of cannabis products worldwide. Its products include dried cannabis and cannabis extracts.
The company’s Cannabis segment consists of adult-use, medical and bulk sales of cannabis under regulated licenses and sold to retail, wholesale, pharmacy, government, and direct to patient. Its Hemp segment consists of hemp seed, hemp foods, and broad spectrum hemp extract containing CBD, which are sold in an unlicensed operation and sold to retail, wholesale and direct to consumers.
Tilray Brands Inc. (Nasdaq:TLRY) recently announced that its medical cannabis division, Tilray Medical, has received approval to commercialize its Tilray branded medical cannabis products in Poland expanding its product offering and distribution across pharmacies in Europe.
Denise Faltischek, Tilray’s Chief Strategy Officer and Head of International Business, said, “I’m extremely proud of our team in Europe for once again expanding our approved authorization for Tilray Medical products across Europe. Tilray will continue to advocate for reasonable patient access to reliable and high-quality medical cannabis in Europe and countries around the world.” (7)
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action TLRY shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -7% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. (8)
Tilray Brands Inc. (Nasdaq:TLRY) managed to rope in revenues totaling $153.3M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 171.1%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels exceeding current liabilities ($415.9M against $280.3M). (9)
Sugarmade Inc. (OTC US:SGMD) is an interesting more speculative name in the space trading at much cheaper levels than other stocks in this report. But the company is moving forward with a number of key catalysts that make it worthy of our focus here.
Sugarmade is a growing presence in the California cannabis marketplace. It recently acquired a grow facility positioned on 640 acres in California and has reportedly planted its first crop for harvest on this farm in October. This morning, the company moved toward expanding its distribution and manufacturing capabilities, including access to licensing, ahead of this harvest, which could make the stock particularly interesting at this point.
Sugarmade Inc. (OTC US:SGMD) announced this morning that its wholly owned subsidiary, SugarRush, has entered into a Management Services Agreement with Canndis, Inc., a California Cannabis Micro License holder based in Desert Hot Spring, CA, providing for an expansion in the Company’s manufacturing and distribution footprint. Canndis’ license covers delivery, manufacturing, distribution, and cultivation capabilities.
According to its release, through the MSA, Sugarmade will assume management responsibilities and operational control over manufacturing and distribution of cultivated cannabis produced at its partner’s “Jerusalem Grade Farm”, which is licensed for 43,560 square feet of outdoor canopy area currently growing at full capacity this season.
The MSA reportedly expands the company’s manufacturing and distribution footprint as Sugarmade prepares to harvest its first cultivated cannabis crop from its partner’s farm. The MSA will provide for the establishment of a new strategically located manufacturing and distribution hub near Palm Springs, CA, as Sugarmade brings that harvest to market.
Sugarmade Inc. (OTC US:SGMD) CEO, Jimmy Chan, noted, “This deal will provide us with a new income stream as we apply our expertise and experience to mobilize Canndis’ assets and market positioning. But it also has substantial strategic value because it lays a foundation for a significantly expanded manufacturing and distribution infrastructure under our control when we harvest our first crop in two months.” (10)
GrowGeneration Corp. (Nasdaq:GRWG) engages in the retail of hydroponic and organic specialty gardening products. It offers lighting fixtures, nutrients, seeds and growing media systems, trays, fans, filters, humidifiers and dehumidifiers, timers, instruments, water pumps, irrigation supplies, and hand tools.
Currently, GrowGen has 62 stores, which include 23 locations in California, 7 locations in Colorado, 7 locations in Michigan, 5 locations in Maine, 6 locations in Oklahoma, 3 locations in Washington, 4 locations in Oregon, 1 location in Arizona, 1 location in Rhode Island,1 location in Florida, 1 location in Nevada, 1 location in Mississippi, 1 location in New Mexico, and 1 location in Massachusetts. GrowGen also operates an online superstore for cultivators at growgeneration.com.
GrowGeneration Corp. (Nasdaq:GRWG) recently announced a series of organizational developments in the areas of accounting and finance and corporate affairs as part of ongoing efforts to better position the Company for future growth and drive long-term shareholder value. Effective August 12, 2022, Jeff Lasher has resigned as Chief Financial Officer of the Company and, concurrently, Greg Sanders, previously Vice President and Corporate Controller, has been promoted to the role of Chief Financial Officer.
“Greg has emerged as one of our Company’s brightest leaders through his contributions to the growth and success of GrowGen over the past several years. I am confident in his abilities to excel in the CFO role to deliver strong financial performance over the long term,” said Darren Lampert, Chairman and Chief Executive Officer. (11)
Traders will note relatively flat action for shareholders of the name during the trailing month, but that move comes in the context of a larger bearish trend. Market participants may want to pay attention to this stock. GRWG has a track record that includes a number of dramatic bounces. What’s more, the company has registered increased average transaction volume recently, with the past month seeing 30% beyond its prior sustained average transaction volume level. (12)
GrowGeneration Corp. (Nasdaq:GRWG) has a significant war chest ($65.6M) of cash on the books, which stands against about $39.5M in total current liabilities. GRWG is pulling in trailing 12-month revenues of $359.4M. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -43.5%. (13)
Other key names in the cannabis space include SNDL Inc. (Nasdaq:SNDL), Trulieve Cannabis Corp. (Nasdaq:TCCNF), Cresco Labs Inc. (OTC US:CRLBF), and OrganiGram Holdings Inc. (Nasdaq:OGI).
References:
- https://www.mauldineconomics.com/the-10th-man/the-bear-market-is-over
- https://www.forbes.com/advisor/investing/contrarian-investing/
- https://www.thestreet.com/investing/growth-stocks-take-the-lead-whats-jpmorgans-stand-on-the-group
- https://www.fool.com/investing/2022/08/08/why-tilray-canopy-and-aurora-cannabis-just-jumped/
- https://www.tradingview.com/
- https://www.grandviewresearch.com/industry-analysis/legal-marijuana-market
- https://finance.yahoo.com/news/tilray-medical-bolsters-market-leading-110000494.html
- https://www.tradingview.com/chart/?symbol=NASDAQ%3ATLRY
- https://www.marketwatch.com/investing/stock/tlry?mod=search_symbol
- https://www.otcmarkets.com/stock/SGMD/news
- https://finance.yahoo.com/news/growgeneration-announces-executives-120000660.html
- https://www.tradingview.com/chart/?symbol=NASDAQ%3AGRWG
- https://www.marketwatch.com/investing/stock/grwg?mod=search_symbol
